...society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. -Adam Smith, The Wealth of Nations The differences between John Mackey and me regarding the social responsibility of business are for the most part rhetorical. Strip off the camouflage, and it turns out we are in essential agreement. Moreover, his company, Whole Foods Market, behaves in accordance with the principles I spelled out in my 1970 New York Times Magazine article. With respect to his company, it could hardly be otherwise. It has done well in a highly competitive industry. Had it devoted any significant fraction of its resources to exercising a social responsibility unrelated to the bottom line, it would be out of business by now or would have been taken over. Here is how Mackey himself describes his firm's activities: 1. "The most successful businesses put the customer first, instead of the investors" (which clearly means that this is the way to put the investors first). 2. "There can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors." Compare this to what I wrote in 1970: "Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions. "To illustrate, it may well be in the long run interest of a corporation that is a major employer...
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...------------------------------------------------- Top of Form Powered by JRank Bottom of Form Reference for Business Encyclopedia of Business, 2nd ed. Reference for Business » Encyclopedia of Business, 2nd ed. » Man-Mix » Managerial Economics MANAGERIAL ECONOMICS Ads by Google 1 year diploma courses - Info on Courses, Scholarships & Admissions from IDP Experts. -india.idp.com/18001022233 SWOT Analysis Tool - Get a free 30 day trial of Mindjet the leading Mindmapping Tool! -www.Mindjet.com online gcp courses - Online, Classroom & Blended Courses Certification Programs & More! -www.cfpie.com CAT Scholarships-T.I.M.E. - Must for all cat and mba aspirants Register Now-Upto 100% scholarships - www.time4education.com/ttse Photo by: nyul Ads by Google MBA - Supply Chain Mgmt. 100% Online backed by Textbooks Academic support,E-Library.Join Now utsglobal.edu.in Rapid eLearning Train your employees with Rapid eLearning, cut your business costs www.niidtech.com MBA Distance Education Online 1 Yr MBA @ 29000. Approved from AIMA India & IAD UK. Enrol Now www.iibmindia.in Papermaking Technology Download white papers on new papermaking machines and processes www.risiinfo.com/whitepapers Decisions made by managers are crucial to the success or failure of a business. Roles played by business managers are becoming increasingly more challenging as complexity in the business world grows. Business decisions are increasingly dependent...
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...can be classified in 3 categories: 1) For profits: Seek gain for their owners 2) Government: Exists to define rules and structures of society within which all organizations must operate 3) Non-profits: Emerge to do social good when the political will of the profit motive is insufficient to address societies needs Stakeholders: Includes all those who are related in some way to a firm “A stakeholder in an organization is any group or individual who can affect or is affected by the achievement of the organizations objectives” could range from clearly defined customers, employees, suppliers, creditors, and regulating authorities, to other more amorphous constituents such as local communities CSR is both critical and controversial; It is critical because the for-profit sector is the largest and most innovative part of any free societies economy. However CSR remains controversial; In spite of the rising importance of CSR today for corporate leaders, academics, and bureaucrats alike, many still draw on the views of the Nobel Prize- winning economist Milton Friedman, who argues against CSR because it distracted leaders from economic goals. Friedman believed that the only “social responsibility of a business is to increase its profits”- that society benefits most when businesses focus on maximizing their financial success. David Packard, a co-founder of Hewlett-Packard however, believes “a group of people get together and exist as an institution that we call a company so...
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...The Big Idea The Age of Customer Capitalism For three decades, executives have made maximizing shareholder value their top priority. But evidence suggests that shareholders actually do better when firms put the customer first. by Roger Martin 58 Harvard Business Review January–February 2010 HBR.ORG Roger Martin (martin@ rotman.utoronto.ca) is the dean of the Rotman School of Management at the University of Toronto. M ILLUSTRATION: GEORGE BATES odern capitalism can be broken down into two major eras. The first, managerial capitalism, began in 1932 and was defined by the then radical notion that firms ought to have professional management. The second, shareholder value capitalism, began in 1976. Its governing premise is that the purpose of every corporation should be to maximize shareholders’ wealth. If firms pursue this goal, the thinking goes, both shareholders and society will benefit. This is a tragically flawed premise, and it is time we abandoned it and made the shift to a third era: customer-driven capitalism. January–February 2010 Harvard Business Review 59 THE BIG IDEA THE AGE OF CUSTOMER CAPITALISM TWO MILESTONES IN MANAGEMENT In 1932, Adolf A. Berle (above) and Gardiner C. Means published their treatise The Modern Corporation and Private Property, endorsing the revolutionary idea that owners ought to turn companies over to professional managers. After Michael C. Jensen and William H. Meckling published “Theory of the Firm: Managerial Behavior...
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...CHAPTER 1 Introduction to Corporate Finance Compensation of corporate executives in the United States continues to be a hot-button issue. It is widely viewed that CEO pay has grown to exorbitant levels (at least in some cases). In response, in April 2007, the U.S. House of Representatives passed the “Say on Pay” bill. The bill requires corporations to allow a nonbinding shareholder vote on executive pay. (Note that because the bill applies to corporations, it does not give voters a “say on pay” for U.S. Representatives.) Specifically, the measure allows shareholders to approve or disapprove a company’s executive compensation plan. Because the vote is nonbinding, it does not permit shareholders to veto a compensation package and does not place limits on executive pay. Some companies had actually already begun initiatives to allow shareholders a say on pay before Congress got involved. On May 5, 2008, Aflac, the insurance company with the well-known “spokesduck,” held the first shareholder vote on executive pay in the United States. Understanding how a corporation sets executive pay, and the role of shareholders in that process, takes us into issues involving the corporate form of organization, corporate goals, and corporate control, all of which we cover in this chapter. 1.1 What Is Corporate Finance? Suppose you decide to start a firm to make tennis balls. To do this you hire managers to buy raw materials, and you assemble a workforce that will produce and...
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...The evolution of the culture of our corporations has evolved in many ways and for many reasons. There were many different factors that played an important role in developing the change in the evolution of corporations. Societal and cultural influences played a major role in the early development of the objectives and reason for existence of corporations. Political forces have and will continue to play an influential role in the structure of corporations and the responsibilities corporations have in the communities in which they exist. Economic forces were one of the early influences, but will also continually be a leading factor in how corporations are governed and operated. The changes to how corporations are operated in turn affect the role of corporations and how they will be operated in the future. All of these factors for different reasons play an important role in the evolution of corporations. The decision making power transitioned from the individual to the corporation. The laws that govern the corporations, the individuals that work for the corporations, the boards that guide the corporations all evolved in the amount and type of authority they hold as well as the role they play. Individual behavior was one of the early influences on business and corporations. Businesses were owned by individuals and families. As businesses grew and the need for large scale operations grew, the scope of the operations of these businesses also expanded. The change was in...
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...large corporation. 4. Explain why maximizing the current value of the firm’s stock price is the appropriate goal for management. 5. Discuss how agency conflicts affect the goal of maximizing stockholder wealth. 6. Explain why ethics is an appropriate topic in the study of corporate finance. I. Chapter Outline 1.1 The Role of the Financial Manager A. It’s All about Cash Flows • The financial manager is responsible for making decisions that are in the best interest of the firm’s owners. • A firm generates cash flows by selling the goods and services produced by its productive assets and human capital. After meeting its obligations, the firm can pay the remaining cash, called residual cash flows, to the owners as a cash dividend, or it can keep the money and reinvest the cash in the business. • A firm is unprofitable when it fails to generate sufficient cash flows to pay operating expenses, creditors, and taxes. Firms that are unprofitable over time will be forced into bankruptcy by their creditors. In bankruptcy, the company will be reorganized, or the company’s assets will be liquidated, whichever is more valuable. If anything is left after all creditor and tax claims have been satisfied, which usually does not happen, the remaining cash, or residual, is distributed to the owners. B. Three Fundamental Decisions in Financial Management • The capital budgeting decision: Which productive assets should the...
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...the approach which Apple use to avoid tax, show some supporting codifications and regulations about this approach, and analysis whether this approach is lawful. At last, I will show my view point about this issue. 1. Explain the approach which Apple use to avoid tax. 1) Basic knowledge Apple is one of the largest international company in the U.S., they create billions of profit a year and become the most successful I.T. Company in the world. Apple sell their products all over the world, at same time, they also have some subsidiary companies overseas to help them avoiding tax. The approach for Apple Inc. to avoiding the huge tax is very complex, and need several special requirements. The main profits Apple earned are from two parts: tangible assets sells such as Iphone, Ipad, and Imac, and intangible property rights which are more and more valuable in today economy. For the tangible assets, it is difficult to avoiding the taxes, but for the intangible property rights is possible to create a tax-shield. Apple’s tax avoid strategy has two parts: First, the company shift the intellectual property profit to an...
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...property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776) Keywords: Agency costs and theory, internal control systems, conflicts of interest, capital structure, internal equity, outside equity, demand for security analysis, completeness of markets, supply of claims, limited liability ©1976 Jensen and Meckling...
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...property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776) Keywords: Agency costs and theory, internal control systems, conflicts of interest, capital structure, internal equity, outside equity, demand for security analysis, completeness of markets, supply of claims, limited liability ©1976 Jensen and Meckling...
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...that does not affect financial decisions. FALSE 2. Financial Capital is composed of long-term plant and equipment, as well as other tangible investments. FALSE 3. Real Capital is composed of long-term plant and equipment. TRUE 4. During the 1930s, financial practice revolved around such topics as the preservation of capital, maintenance of liquidity, reorganization of financially troubled corporations and bankruptcy. TRUE 5. In the mid 1950s, finance began to change to a more analytical, decision-oriented approach. TRUE 6. Recently, the emphasis of financial management has been on the relationship between risk and return. TRUE 7. The most common partnership arrangement carries limited liability to the partners. FALSE 8. In terms of revenues and profits, the corporation is by far the most important form of business organization in the United States. TRUE 9. Dividends paid to corporate stockholders have already been taxed once as corporate income. TRUE 10. One advantage of the corporate form of organization is that income received by stockholders is not taxable since the corporation already paid taxes on the income distributed. FALSE 11. A corporation must have more than 75 stockholders to qualify for Subchapter S designation. FALSE 12. Profits of a Subchapter S corporation are taxed at corporate tax rates. FALSE 13. Corporate governance issues have become less important to the financial community...
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...either illegal or unethical in the pursuit of driving sales and increasing profits. During the latest recession, while sales at full-service restaurants in America fell by more than 6%, total sales remained about the same at fast food chains (Franklin, 2010). The purpose of this paper is to determine whether or not only the largest of corporations will be able to prosper and remain viable in the coming years. It is difficult to believe that it has been almost one hundred years since the first “fast food restaurant” came into existence. Many people think that the McDonald brothers of California started the fast food craze in America, but in reality it was the White Castle hamburger chain that actually started fast food history in America. J. Walter Anderson opened the first White Castle in 1916 in Wichita, Kansas (Chambers, 2011). In 1948, the McDonald brothers merged products similar to those at White Castle and employed their own ”Speedee Service System” to create a more efficient and cost effective way of providing the consumer with these products. This new found love of faster cars and lifestyles for teenagers following the war allowed more customers to be serviced in the same amount of time. By streamlining the operation, getting customers to spend less time but the same amount of money in the facility, and servicing more people per day, the McDonald brothers were able to increase their total profits dramatically by improving their variable and total costs. The term “Fast...
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...science and revolutionized the fields of agriculture, transportation, and medicine. Business professionals have taken the products of art and dramatically increased our access to them. We have more food, we are more mobile, we have more health care, we have more access to works of fiction, theater, and music than anyone could reasonably have predicted a few centuries ago. The result of business in the West, and more recently in parts of the East, has been an enormous rise in the standard of human living. We have gone, in the space of a few centuries, from a time in which perhaps 10% of the population lived comfortably while 90% lived near subsistence to a time in which 90% live better than comfortably and 10% live near subsistence. And we haven’t given up on the remaining 10%. Intellectuals who study the free society have, in the fields of economics and politics, a good understanding of what makes this possible: individualism. In economics there exists a well worked out understanding of how, starting with autonomous individuals engaging in voluntary transactions, goods, services, and information flow efficiently to where they are needed. In politics there exists a good understanding of how protecting individual rights and limiting government power prevent the arbitrariness and stultification that suppress individuals’ creativity and incentive in all2 Hicks: Ayn Rand &...
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...the past decade have served as a powerful reminder of the risks that are involved in the ownership of enterprise. Unlike other patrons of the firm, owners are residual claimants on its earnings.1 As a result, they have no explicit contract to protect their interests, but rely instead upon formal control of the decision-making apparatus of the firm in order to ensure that their interests are properly respected by managers. In a standard business corporation, it is the shareholders who stand in this relationship to the firm. Yet as the recent wave of corporate scandals has demonstrated once again, it can be extraordinarily difficult for shareholders to exercise effective control of management, or more generally, for the firm to achieve the appropriate alignment of interests between managers and owners. After all, it is shareholders who were the ones most hurt by the scandals at Enron, Tyco, Worldcom, Parmalat, Hollinger, and elsewhere. For every employee at Enron who lost a job, shareholders lost at least US$4 million.2 Furthermore, employees escaped with their human capital largely intact. Creditors and suppliers continue to pick over the bones of the corporation (which still exists, under Chapter 11 bankruptcy protection, and continues to liquidate assets in order to pay off its debts).3 But as far as shareholders are concerned, their investments have simply evaporated, beyond any realistic hope of retrieval. (In fact, one of the reasons that Enron’s collapse was particularly damaging...
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...natural monopoly in which economies of scale result in a single firm producing at a lower cost than a large number of smaller competitive firms. 1 Since the beginning of the antitrust trial against Microsoft there has been a great deal of commentary and analysis concerning the market position, pricing and strategic behavior of Microsoft. The courts Finding of Fact and the recent Conclusions of Law have intensified the interest in the case and resulted in even more analysis and questioning of the courts findings. This paper adds to the current list of Monday morning quarterbacks questioning among other issues: Whether or not Microsoft is a monopoly? Did they violate the antitrust laws? Have they harmed consumers? If the answer to previous questions is in the affirmative, then what remedies should be enacted? The purpose of this paper is to address the first and perhaps the most contentious question of whether or not Microsoft is a monopoly. Although most people have a general understanding of what a monopoly is, to eliminate any ambiguity it is helpful to establish a precise definition of monopoly. A generally accepted definition describes a monopoly as: I A market composed of a single or dominant firm, II That sells a good with no close substitutes, III In a market with barriers to entry. Thus, to be considered a monopoly a firm must satisfy all three criteria. It should be noted that even if a firm is determined to be a monopoly it is neither illegal nor pernicious...
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